This thesis evaluates the Dutch reform of capital income taxation of January 1, 2001. The Dutch capital-income-tax system before the reform distorted the choice between the investment’s sources of finance and uses of earnings, the businesses’ legal form, and the households’ (either debt-financed or equity-financed) saving vehicles. Such distortions imply that agents that seek to minimise their tax liabilities will change the allocation of their savings and investments (tax-arbitrage behaviour). This thesis discusses the tax-arbitrage behaviour of firms, households and intermediaries (mutual funds and pension funds) before and after the Dutch tax reform of January 1, 2001. The analysis explores whether the capital-income-tax reform reduced tax-arbitrage opportunities and/or created additional tax-arbitrage opportunities. This thesis thus explores whether the tax reform mitigates the distortions that were prevalent in the capital-income-tax system before the Dutch tax reform of January 1, 2001. In addition to carrying out the tax analysis, this thesis adjusts and extends the models that are typically used to study tax-arbitrage behaviour. The analysis extends the King and Fullerton (1984) method for deriving marginal effective tax rates. Sinn’s (1991) dynamic finance and investment model of the firm, which is used to derive the agents’ optimal tax-arbitrage behaviour, is also extended.

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A.L. Bovenberg (Lans) , S. Cnossen (Sijbren)
Erasmus University Rotterdam
Tinbergen Instituut Research Series
Erasmus School of Economics

Brys, B.J. (2005, February 17). Tax Arbitrage in the Netherlands : evaluation of the capital income tax reform of January 1, 2001 (No. 344). Tinbergen Instituut Research Series. Erasmus University Rotterdam. Retrieved from